Remember the Last One?

Do you remember what caused the financial meltdown of 2008? Boston Fed President Eric Rosengren said it last week with elegant simplicity: the “significant decline in collateral values” of both commercial and residential real estate was “the root cause of the financial crisis,” he said. When real estate values fell below the value of the debt pledged against them, the shortfall blew a huge hole in bank balance sheets. As the banks struggled to cope, they stopped lending to their customers and themselves and the system crashed due to a liquidity crisis.

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An American Car Bomb

March and April auto sales data were very poor, as reported here. Would we see a bounce back in May? Not a chance. Auto sales declined for the fifth straight month with domestic light vehicles annualizing 12.59 million vehicles, the lowest sales number going back more than three years, despite record incentives and discounts to rental and other fleet customers. Even worse, inventories continued to grow.

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